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Oral History Interview with Sherwood Smith, March 23, 1999. Interview I-0079. Southern Oral History Program Collection (#4007) in the Southern Oral History Program Collection, Southern Historical Collection, Wilson Library, University of North Carolina at Chapel Hill.

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[What was] the nature of the relationship between a place like CP&L and given the heavy regulatory character of the operation of a utility company, with the folks across the street at the state capital and the folks up in Washington? How [were] those relationships managed? What [had] you begun to see, in your early years here, about how to handle that whole issue of a regulated utility relating to your governing agencies?
SS: Yes. It's a tremendously important part of the life of any electric utility. It was a tremendously important part of Carolina Power and Light's life, long before I was involved in it, when I was involved in it, and even today. The electric utility industry is probably the most highly regulated industry in the country. If you start at the federal level, you have the Federal Energy Regulatory Commission, formerly the Federal Power Commission. You have the Nuclear Regulatory Commission for all companies operating nuclear plants. You have the Environmental Protection Agency. You have the Securities and Exchange Commission. Occasionally, you might have the Federal Trade Commission involved. Occasionally, you might have something that would go before the Justice Department. Occasionally, you might have ICC [Interstate Commerce Commission], which is now the Federal Transportation Board. You have all of those regulators, plus the United States' Congress -- which is very interested, as they should be, in ensuring there's an adequate supply of reasonably priced energy, particularly electricity, in the country. The state level you have, of course, a governor and the Department of Commerce [both] very interested in the economic growth and development. You have a State Utilities Commission that regulates the rates and services of not only electric companies, but gas companies, telephone companies. At one time they had jurisdiction over transportation, but that's either disappeared or moved to the federal level for the most part. In addition, you have state environmental agencies. The names of those agencies have evolved over time. Generally speaking, they're agencies that are responsible for land use, air quality, and water quality in the state. I haven't mentioned the state Department of Labor, the Federal Department of Labor, and the Occupational Safety and Health Act, and those things, because they apply to all businesses. They also impact utilities because utilities are very visible. Often we feel the impact or the affect of federal regulation first, before some other businesses feel that. How does one manage that? Of course the first thing you have to do -- and I'll simplify this, and then be glad to go into more detail – [is] you have to make sure that the business that you run, runs very well. Just assume that you weren't regulated at all. If you had the ability to say, “This company is going to be run with the highest possible degree of excellence, just because that's a good thing. That's the way it should be. It makes the company more profitable, a better citizen.” You have to focus on your operations. Then if you do a good--. When I say, “you,” I’m not talking about myself or any other individual. If the company does that well, then your position vis a vis the regulators is, One: you understand what their legal authority and responsibilities are. You have written reports and you have formal hearings. But, there's an interaction that takes place because you're constantly subject to inspection. Something will happen. Even though it may not be a happening that requires a formal legal notification -- just in the sense of good communications -- the regulators are informed. They know when something is publicly announced, that it is going to be announced because they'll be asked questions by the consumer or other people in government, “What does this mean that X utility is doing such and such?” You have to have a system so that it's open, it's communicative, and it's informative. Yet, the regulators aren't the managers of the company. You have to have an appropriate distance there. You keep them informed. There may be things that they'd like you to do, that you don't feel you should do. There may be things that you feel you must do, that the regulators -- some of them, for whatever reason -- feel you shouldn't do. You have to be prepared to stand your ground based on the facts and the overall best interests of the company and the consumer you serve. In the electric utility industry, and not yet fully in telephones or gas [industries], you don’t have the type of competition that you have in many other businesses. The regulators are deemed to be a surrogate for that type of competition. That is, they have the responsibility to the public. I'm talking about the Utilities Commission and the Federal Energy Regulatory Commission, principally, that regulate the price and regulate the types of service and the quality of service that you provide. It's their responsibility to be a substitute for competition. That system was put in place in order to prevent unnecessary economic waste and duplication -- which apparently, at one time, we had at some places in this country. You have to respect their authority. You have to be prepared to justify fully whatever action you have been taking or propose to take whatever steps they may wish you to do, that you don't feel you should. You have to manage the business, realizing that they have a very special and unique role and have open communications. Yet, you have to assume the responsibility for managing the business as you think best. Many times that leads to disagreements. The ways for disagreements to be resolved, realizing that the legislature and the Utilities Commission have the last say so--. I mean, the regulation of business -- particularly public service -- is a legislative function. You have to be attuned to the fact that your customers expect certain things, and that they have access to the regulators. The regulators hear from the public. You want the customers to have every reason, when they do express their opinions to the regulators, to be able to say, “Yes, I receive good quality of service.” In our business, the quality of service is the most important thing. It's more important than price, although price is tremendously important. Someone else once said, in sort of a national debate on electricity many years ago, “The most expensive electricity you can have is no electricity.” It's not my phrase, but it says a lot in a few words. How do you manage that? Well, [you have] good customer service. You operate the business well. You have employees in various places in your company that have the responsibilities for interfacing with regulators. They have to be well-trained and authorized to make sure they perform their jobs, so that the regulators are kept informed of what you're doing and why you're doing it. Then, just as it's important to have well qualified people elected as president of United States, or governor or to the legislature, it's important that you have well-qualified people elected to the Public Service Commission or the Federal Energy Regulator Commission or the Nuclear Regulatory Commission. The utilities obviously don't have control over who's appointed to those bodies, but if they let it be known, not which individuals that they think would be good, but the qualifications that one needs to be a good regulator--. There are certain qualifications, for example, on the Utilities Commission that could be very helpful in different degrees: some background in accounting, finance, even general business and engineering. With the Nuclear Regulatory Commission, an even more detailed technical and scientific background can be helpful. Just like in the Final Four basketball game, you hope you've got good, fair, reasonable, objective referees. You don’t have referees that come into the game and say, “Hey, I really think it's time for team A to be watched a little more closely than Team B on technical fouls or traveling or something.”